Crest Nicholson Shares Surge as it Rebuffs Bellway

Latest takeover approach in the London market sees one housebuilder reject an advance from a larger rival

Christopher Johnson 14 June, 2024 | 12:16AM
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Shares in housebuilder Crest Nicholson (CRST) rose nearly 10% on Friday as it announced it had rejected a £667 million takeover bid from larger rival Bellway (BWY). The move is the latest sign of revived M&A activity in the London market, which has seen a number of takeovers and bids.

FTSE 250 housebuilder Bellway announced late on Thursday that it had made a bid for Crest Nicholson, which earlier in the day had revealed a half-year loss of £30 million, sending shares lower. The offer had been made on April 25 and revised higher on May 7.

The Crest Nicholson board said the offer significantly undervalues the company, even though the deal would represent a near 20% premium to the price before the approach.

For Grant Slade, senior equity analyst at Morningstar, Bellway has time to make another binding offer. The potential for a higher offer has lifted the shares on Friday, making Crest Nicholson worth just under £600 million; against Bellway's market value of £3 billion.

Slade thinks Bellway will “sweeten” the deal to appease Crest Nicholson’s board. Bellway shares fell on Friday, as investors anticipated the company having to pay more to acquire Crest Nicholson.

“While sales activity on Bellway’s housing sites treaded water in spring, the near-term housing market outlook is improving. Indeed, a number of leading indicators of the housing market — including house prices and mortgage approvals — are trending favourably in 2024 year to date and point to a housing market that is nearing recovery,” he says.

“We continue to anticipate a housing market revival from 2025 onward and a rewarding decade ahead for Bellway — and its major UK homebuilder peers — as a growing and ageing population promotes robust demand for new housing in the UK over the long term.”

Despite Slade’s more positive outlook for the UK housing market, Crest Nicholson reported a £30.9 million pretax loss in its half year results, a large swing from the £28.4 million in profit it reported the year before.

Morningstar Metrics for Bellway 

• Fair Value Estimate: £26.34
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

Bellway said that despite the rejection of its proposal, it continues to believe in the growth opportunity a merger could provide. Bellway shares fell more than 4% on Friday to £25.94, which is below the Morningstar fair value estimate for the stock.

"There is compelling strategic and financial rationale for a combination of Bellway and Crest Nicholson which would bring together the strength of each business with complementary brands to reinforce Bellway's position as a leading UK housebuilder.

"While enabling Crest Nicholson shareholders to benefit from the scale of the combined business, a reduced risk profile, lower indebtedness and an enhanced landbank to capitalise on the long-term structural growth opportunity in the UK housing market,” Bellway’s board said in a statement.

The bid is the latest deal in the UK housebuilding sector, following Barratt Developments (BDEV) bid for Redrow (RDW) earlier this year, as the sector struggles to cope with the industry wide downturn triggered by high interest rates.



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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Bellway PLC2,662.00 GBX0.68Rating
Crest Nicholson Holdings PLC254.00 GBX1.28

About Author

Christopher Johnson  is data journalist at Morningstar

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